Uganda must improve agriculture to fuel growth: World Bank

KAMPALA (Reuters) - Uganda must move up the value chain in agricultural production, create more jobs outside farming and tame double-digit inflation to get its economy back on a vigorous growth path, a World Bank official told Reuters on Tuesday.

Official statistics show growth in east Africa's third-largest economy is expected to tumble in the fiscal year ending this month to 3.2 percent from 6.7 percent in the previous year.

Analysts tie the sharp contraction to last year's aggressive run of monetary policy tightening by the central bank to contain rampant inflation, which peaked at above 30 percent in October.

Ahmadou Moustapha Ndiaye, World Bank country manager in Uganda, said in an interview that the slide in growth was undermining the country's recovery from the 2008-09 global economic turmoil.

"Uganda must transform from low to higher productivity activities," he said. "On the production side, agriculture, which is the bedrock for Uganda's industrialisation ... must transform and become more productive."

Africa's largest coffee exporter relies on agriculture for over 75 percent of its working population although mechanisation is limited and much of the output is sold in semi-processed form, severely limiting earnings from the sector.

President Yoweri Museveni's government has long been criticised for underfunding the sector and the country's banking industry has been wary of boosting credit to agriculture, citing its risk profile.

Ndiaye said average farm yields in Uganda were below 40 percent of those achieved at Uganda's research stations and the country needed to step up industrialisation in agro-processing to "achieve convergence" with middle income countries.

Although the government says it's keen on expanding Uganda's manufacturing industry to add value to most commodity exports, those efforts remain largely stymied by insufficient power and poor infrastructure.

"Uganda also needs to create jobs outside of agriculture ...

job creation is particularly urgent because Uganda has the fastest growing workforce on the planet," he said.

OIL REVENUE TRANSPARENCY

The Bank of Uganda says the country's economy is likely to rebound in 2012/2013 and expand at between 5 to 6 percent as high inflation continues to ebb, which would allow a loosening of its tight policy stance and private sector credit growth.

Ndiaye, though, said this year's slump in growth, compounded by price pressures and exchange rate instability, was taking a toll on investor confidence.

"Investors like stable and predictable environments that allow for effective planning. To regain investor confidence, therefore, there should be stability, inflation at single digit level," he said.

Authorities attributed last year's spike in inflation to slowing food production combined with high regional demand, as well as global fuel price rises.

Somes analysts also blame increased public spending ahead of February 2011's presidential elections for the price surge.

Ndiaye said the government's "supplementary spending" was sidetracking budget planning from original priorities and that the bank was worried such spending was not producing better service delivery.

To guarantee transparency in the use of earnings from the country's oil reserves, he said Uganda should join the Extractive Industries Transparency Initiative (EITI), a coalition of governments, companies and civil society groups that aims to improve transparency and accountability.

"EITI membership helps bring about an improved investment climate by providing a clear signal to investors and international financial institutions that the government is committed to greater transparency," he said.

Uganda struck commercial hydrocarbon deposits in its Albertine rift basin along the border with Democratic Republic of Congo in 2006 and the government estimates reserves at 2.5 billion barrels.